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Centex Corporation (CTX)

F2Q09 Earnings Call

October 29, 2008 10:00 am ET


Timothy Eller – Chairman, Chief Executive Officer

Cathy R. Smith – Executive Vice President, Chief Financial Officer

Matthew G. Moyer – Vice President – Investor Relations

Mark D. Kemp – Senior Vice President, Controller


Joshua Levin – Citi Investment Research

Daniel Oppenheim – Credit Suisse

Nishu Sood – Deutsche Bank

Rob Stevenson – Fox-Pitt Kelton Cochran Caronia Waller

Chris Hussey – Goldman Sachs & Co.

Jim Wilson – Jolson Merchant Partners LLC

Michael Rehaut – J. P. Morgan

Kenneth Zener – Macquarie Research

Stephen East – Pali Capital

David Goldberg – UBS Securities

Carl Reichardt – Wachovia Securities

Ivy Zelman – Zelman & Associates

James Mccanless – FTN Midwest Securities

Stephen Kim – Alpine Woods Capital Investors

Susan Berliner – J. P. Morgan

Alex Barron – Agency Trading Group

Buck Horne – Raymond James

Eric Landry – Morningstar

Joel Walker – SBN Securities



Good morning and welcome to the Centex Corporation fiscal year 2009 second quarter earnings conference call with senior management. Today’s call will be recorded and transcribed. Today’s call also will be simultaneously webcast at ir.centex.com.

A copy of today’s presentation was filed last night with the SEC on Form 8K. A link to that document is now available on the website. As usual, participants must download and advance their own slides during today’s conference.

Continuing on slide 2, Centex wishes to emphasize to everyone listening on the call and via the Internet that certain statements made during the course of this call are forward looking. These statements are not guarantees of future performance and are subject to significant risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For further information regarding these risks and uncertainties and Centex’s forward-looking statements please refer to the forward-looking statements disclosure in the presentation and to Centex’s reports on Forms 10K and 10Q filed with the SEC.

All participants will be in a listen-only mode. There will be a question-and-answer session after managements’ remarks. (Operator Instructions). In the interest of time we will limit each person to one question and one follow-up question. If you have additional questions following today’s call please contact Matt Moyer, Vice President of Investor Relations, at 214-981-5000.

I now turn the call over to Tim Eller, Chairman and CEO. Please go ahead, Sir.

Timothy Eller

Thank you, Christy. Good morning, everyone. Thanks for joining us for our fiscal year 2009 second quarter conference call. With me today is Cathy Smith, our chief financial officer, Mark Kemp, our chief accounting officer, and Matt Moyer, head of investor relations.

I’ll start our call today with some introductory comments on the quarter, as well as a few thoughts about the months ahead. Next Cathy will provide details about our financial performance for the quarter and the year to date. Then I’ll offer some closing comments and we’ll take your questions.

Turning to slide 3, it’s an understatement to say that unprecedented economic conditions have had an increasingly negative impact on the housing industry. Last quarter our sales per neighbourhood dropped to an average 1.7 per month from 2.5 in the previous quarter. Sales may well weaken further in the December quarter.

I’ll suggest, however, that I think virtually all elements of a bottom for the housing cycle are in place. But it’s not at all possible to predict when we’ll reach bottom or how long we’ll likely bounce along there. Frankly, conditions will probably get worse before they get better, especially in light of the continuing financial and credit turmoil and increasing job losses.

The depth and duration of this housing and financial correction make this a game changer for home builders like no cycle that has come before. I believe it will dramatically alter the competitive landscape. It’s now clear that this cycle will test the best and eliminate the rest.

At Centex we have been consistent in our actions based on the current market realities at the time to effectively navigate this unprecedented cycle. We’re continuing to increase our cash position, ending the quarter with $1.3 billion cash on hand. That’s up more than $700 million since the beginning of the fiscal year and $64 million over our last quarter after having paid off $150 million of maturing senior notes in the quarter.

We’ve combined and consolidated operations around the country for efficiency. In California, for example, we now operate two divisions with a couple of satellite offices where we once operated nine separate divisions. We’ve made similar changes in Florida and the Carolinas.

We’ve shortened our land position. Only one other national builder has a lower total lot position than Centex based on the last 12-month sales. We accomplished this not through distressed sales nor forcing specs, but through an effective and practical business approach of pre-selling homes to a backlog and then building homes on a predictable schedule based on that backlog. While sales have declined, we’re carefully managing that process to optimize volumes and maintain resource efficiencies. As we do we’re retaining the capability to take advantage of the inevitable and perhaps historic opportunities as that will arise. We intend to excel on the other side of this housing cycle.

Based upon our multiple cycle experiences, I believe we’re making the right strategic choices for the current environment. We’ve established a steady monthly pattern of improving gross margins this fiscal year despite commodity price pressures and declining sales. Gross margins have increased every month for the past six months. Direct construction costs have declined 0.5% each month.

Gross margins reached 15% in the second quarter and our backlog indicates that we’ll see additional improvements. Discounts and incentives have dropped, as have financing costs and sales concessions. Further confirmation that our build-to-order transparent pricing approach is the right one.

Read the rest of this transcript for free on seekingalpha.com